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Federal Judge Approves Citi $730 Million Bondholder Settlement

A federal judge has approved a $730 million settlement between Citigroup Inc. and investors in four dozen bond and preferred stock-offerings who had accused the bank of lying about the quality of investments.

The plaintiffs, including the Arkansas Teacher Retirement Systems and Louisiana Sheriffs' Pension and Relief Fund, argued in lawsuits filed against Citi that the bank misled them about its exposure to securities backed by mortgages, misrepresented the credit quality of the loans included in the investments and understated the loss reserves.

The parties announced a settlement in March that covers investors who purchased the securities in question between May 2006 and November 2008.

A Citi spokeswoman didn't immediately respond to a request for comment. Citigroup said in March it did nothing wrong and settled the suit to avoid the costs of prolonging litigation.

"We and our clients are extremely pleased that the court approved the settlement, which we believe is an outstanding result for investors," said John Browne, a partner with the law firm Bernstein Litowitz Berger & Grossmann LLP who represented bondholders in the case.

The deal is among the largest settlements of investor litigation stemming from the financial crisis, which resulted in billions of dollars of losses on mortgage-backed securities and other bonds and led to a wave of lawsuits against Citi and other large banks including Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM).

"The court finds the proposed class action settlement is fair, reasonable and adequate," U.S. District Court Judge Sidney Stein wrote in an opinion filed with the court Tuesday. Judge Stein noted that the settlement drew "minimal objections," and that further litigating the case would be "equally or more so" expensive and time-consuming for the parties involved.

While experts for the plaintiffs had estimated their damages stemming from losses on their investments to be about $3 billion, a $730 million recovery "represents a substantial sum," he wrote.

Citi, like other banks, has recently made headway in settling its mortgage-related litigation.

Last month, the New York company reached a $968 million settlement with Fannie Mae (FNMA) in an unrelated matter that will minimize its exposure to demands that it buy back mortgages that had failed to meet certain underwriting standards.